All of the major currencies traded sharply higher Thursday on the back of strong gains in U.S. equities. Risk appetite has been healthy throughout the week but investor optimism carried the S&P 500 and Dow Jones Industrial Average to record highs. These moves also drove EUR/USD, GBP/USD and USD/JPY to 2-month highs. While a stronger-than-expected Philadelphia manufacturing index and lower jobless claims reports contributed to the rally, trade relief is the main reason why investor sentiment is so strong. The trade war hasn’t disappeared but aside from limited retaliation by China, tensions did not escalate further this week. The economy is strong and earnings have been great and there’s a good chance that the Federal Reserve will give the market a break after raising interest rates next week. Investors also feel confident that its just a matter of time before NAFTA and Brexit deals are reached. USD/JPY hit 112.50 and we think the rally could extend to 113 before next week’s FOMC rate decision.